Richard Moriarty, president of Moriarty & Primack, Certified Public Accountants, in Springfield, was shocked to see his company's health insurance rates increase by 19% last June. But he knew he was in good company.
Mary Ellen Canavan, owner of United Personnel Services Inc., says her Springfield-based staffing agency has watched health insurance rate increases outpace sales increases in recent years. And Nancy Urbschat, a principal in TSM Design in
Springfield, laments that health insurance is claiming an increasingly larger part of her small advertising design firm's resources.
Like their counterparts across the state, local business people are feeling more than a bit queasy about soaring health insurance rates, particularly in the wake of a recent announcement by the state's major health insurers that premiums for private employers will climb an average of 7% to 17% in 2001. But business group leaders and insurers say that while more companies are looking into alternatives in health insurance coverage these days, most are reluctant to make major coverage changes for fear of upsetting valued employees.
"The economy is so hot and unemployment is less than 3% ... employers are feeling they have to offer good coverage," said Richard Lord, president of the Associated Industries of Massachusetts (A.I.M.) He said companies across the state have seen double-digit increases in health insurance rates this year and last, ranging from 10% to 20%. Most companies, he says, pay 50% to 80% of health insurance premiums for their workers.
"You would think people would drop coverage, but that's not happening," Lord said. "There's such a competition for workers out there." Still, Lord says he's surprised he hasn't gotten more complaints from A.I.M.'s 5,400 members. He theorizes that the economy is doing so well it is masking the effects of the climbing rates. Lord also predicts that if there is an economic slowdown, major changes in the health insurance benefits being offered by private employers should be expected.
All Well and Good
Russell Denver, president of the Affiliated Chambers of Commerce of Greater Springfield, says he's heard from many business owners who are frustrated over health insurance increases. For many companies, he says, health insurance has risen to become one of the top three expenses, following raw materials and salary costs.
Prior to the recent fairly dramatic increases, Denver says, health insurance costs were nowhere near the top of most companies' expenditure lists. But, he notes, small businesses have had to absorb rate increases of 10%, 15% and even 20% in the last two years.
Denver says he is seeing more chamber members opt for lower premium costs and higher employee deductibles by returning to traditional indemnity insurance plans like the one offered through the Chamber. The Chamber is also looking into setting up a health insurance trust through which members would contract with an entity to administer their group insurance plan, saving money on reduced administration costs, he says.
Richard LaBine, president of Health and Benefits Consultants in Springfield, is
seeing most of his clients take a wait-and-see attitude to rate increases, though
many are concerned about the upward path of rates. "Because of the low
unemployment rate, companies are very cautious about passing too much of the
costs on to employees," he said.
LaBine's company helps businesses determine which health insurance plans are best for them. He says clients with less than 100 employees are seeing rate increases of 10% to 30%. Most of those with more than 100 employees self insure, he notes, and have had less severe hikes of 8% to 12%. Last year, he says, increases ranged between 5% and 8%. And prior to that, increases were around 1% to 4%.
LaBine says some companies are seeking rate relief by upping employees' copayments for care and for prescription drugs. Companies that had HMO plans with copayments of $5 per visit and $5 and $10 per prescription three years ago are now choosing plans with $10 to $20 copayments, he says. The changes do pass along costs to employees, but do so as they use the coverage rather than hitting workers with reduced benefits or higher premium payments.
Only a few companies, LaBine notes, have chosen to make employees pay a higher percentage of health insurance premiums, and those companies tend to be in segments of the economy where employees are more plentiful. Like Lord, LaBine predicts that companies will decrease the percentage of health insurance premiums they pay if the economy were to slow down. He doesn't think a substantial number of companies will turn away from HMOs and return to indemnity plans, however. "That won't happen," he says, contending that such a move isn't financially beneficial for most companies.
At United Personnel Services, Canavan had LaBine evaluate her company's health insurance options in light of recent rate hikes. Her company chose to remain in an H90 plan with Health New England, she says, but did opt for a higher deductible and copayment structure. Canavan sees advancements in medical technology as an understandable factor in increasing insurance costs. "You have all these wonderful tests available, but they cost a lot of money," she says.
Urbschat says TSM Design continues to pay 100% of health insurance coverage for its five employees and hasn't looked into coverage alternatives despite the increases. TSM is covered by Blue Cross and Blue Shield. "It's a big number every month for 100% coverage," Urbschat said, "but our employees are satisfied. They've got good coverage."
Urbschat says she would probably change insurance plans if she could find an alternative that would offer the same coverage for less money. But like most small companies, she says TSM doesn't have anyone who has time to shop around for plans.
Like Canavan and Urbschat, Moriarty has chosen to stay with the same plan his company has been using through Tufts Healthcare. His company also continues to pay 100% of workers' health insurance premiums, he says. Employees are reluctant to change plans, according to Moriarty, and feel Tufts has done a good job. Last year, his company did opt for a higher copayment in order to cut costs.
Moriarty said some of his accounting clients are asking employees to pay a larger percentage of their health insurance costs, but added that most have maintained funding the majority of the monthly premium but added a provision where employees would pay a larger percentage of future premium increases. He says his clients are very aware of the fierce competition for employees.
According to Moriarty, insurance and benefits, including pensions, now amount to 20% to 30% of a company's salary expenses. He estimates that health insurance makes up 40% of a company's benefit expenses. Health insurance averages about $500 for a family plan these days, compared with $350 just two years ago, he estimates."
No Quick Cures
If local business people are frustrated by the health insurance rate increases, they also are aware of the demands and sweeping changes that the health care system has been undergoing. Moriarty and LaBine point to a time five or six years ago when skyrocketing health insurance rates were a huge issue for businesses. Then came the HMOs which, they note, brought new efficiencies and lower rates.
LaBine says he has been expecting substantial rate hikes because insurance carriers had not been adjusting their rates in recent years to keep pace with the inflation going on in the medical field. "There was a point when HMOs just wanted to get as many members into their organization as they could without taking into consideration the finances," he said.
Lord said companies were able to save some 25% on health insurance costs with the emergence of HMOs in the early to mid-1990s as competing HMOs squeezed excess capacity out of the health care system. "it appears we've reached a point where there isn't much excess to squeeze out." At the same time, increased prescription drug costs are raising havoc with medical expenses.
Indeed, insurers finger prescription drug costs, as well as increasing demands by regulators and providers, for their rate increases.
James Kessler, vice president and general counsel for Health New England Inc. of Springfield, which has the second largest HMO membership in the region, cites a combination of soaring drug prices and increasing cost demand from providers for its expected 7% to 10% rate hike for 2001. He notes a general upward trend in health care costs as well.
"Manufacturers have been continuing to develop new drugs and new drugs tend to be very expensive," Kessler says. What's more, he and other insurers note that prescription drug companies are now spending millions of dollars to market new drugs directly to consumers. When consumers seek out name-brand drugs they've seen on television rather than using cheaper generic drugs, costs soar, he said.
There are other factors that have also contributed to higher health insurance costs, according to Kessler. In the past, he says, there were very few mental illnesses that could be treated. Now, he says, millions of people are on anti-depressants, contributing to the increased cost for prescription drugs.
Kessler says prescription drug costs have been increasing by 15% to 20% a year in recent years. This year, he noted, Health New England spent as much on prescription drugs as it did on inpatient care. "That's pretty remarkable," he observed.
Barbara Tierney, retention sales leader for the Central and Western Mass. Region for Blue Cross and Blue Shield (BCBS), says her company has retained nearly 100% of its customers despite recent rate increases. BCBS will raise rates for its HMO customers by 10% to 12% on average in 2001, with jumps of 12% to 14% for preferred provider organizations (PPOs). BCBS's indemnity plan will go up 14% to 17% in 2001, according to Susan Leahy, the company's director of media relations.
According to Tierney, prescription drug costs are escalating at rates far ahead of anything else in health care. She too noted the trend of drug companies launching ads aimed directly at consumers. Tierney says some newly mandated state requirements, such as the Mental Health Parody provision, are also adding to health care costs. That measure, she notes, expanded benefits for mental health treatment.
Kessler and Tierney say they are not losing customers due to rate hikes. "I think people realize that the pressure for these increases has been everywhere," Kessler says.
Tierney, meanwhile, says BCBS is right in fine with its competitors in terms of rates and gets good grades from customers on its service.
Both Kessler and Tierney note that more customers are looking for ways to cut costs through higher deductibles. "Employers are looking for fewer rich options but we haven't seen a big march toward indemnity plans," Kessler said. Self insurance, he says, continues to be popular.
A Wait and See Attitude
At least for now, area companies seem to be in a holding pattern on health insurance as debates on rising costs play out in the medical field and the political arena. Christopher Geehern, executive vice president at the AIM office in Holyoke, notes that most member companies in his group are paying health insurance increases themselves without passing costs on to their employees. "So in a lot of ways this is going right to the bottom line," he says.
All that could change, he warns, not only if the economy slows but also if a statewide November ballot initiative Question 5 - is passed. A.I.M. is focusing its energy on opposing Question 5, which Geehern says will prohibit managed care organizations from using provider networks; will require universal access to health care without mapping out how it will be paid for; and will prevent nonprofit health care insurers from converting to forprofit status. Geehern contends that if Question 5 passes, everybody's health insurance costs will increase by 45%.
"If this question passes, it will make the increases we're facing now look like chump change," he warned.
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